A great manufacturing country is peculiarly exposed to temporary
reverses and contingencies, produced by the removal of capital
from one employment to another. The demands for the produce of
agriculture are uniform, they are not under the influence of
fashion, prejudice, or caprice. To sustain life, food is
necessary, and the demand for food must continue in all ages, and
in all countries. It is different with manufactures; the demand
for any particular manufactured commodity, is subject not only to
the wants, but to the tastes and caprice of the purchasers. A new
tax too may destroy the comparative advantage which a country
before possessed in the manufacture of a particular commodity; or
the effects of war may so raise the freight and insurance on its
conveyance, that it can no longer enter into competition with the
home manufacture of the country to which it was before exported.
In all such cases, considerable distress, and no doubt some loss,
will be experienced by those who are engaged in the manufacture
of such commodities; and it will be felt not only at the time of
the change, but through the whole interval during which they are
removing their capitals, and the labour which they can command,
from one employment to another.

19.2

Nor will distress be experienced in that country alone where
such difficulties originate, but in the countries to which its
commodities were before exported. No country can long import,
unless it also exports, or can long export unless it also
imports. If, then, any circumstance should occur, which should
permanently prevent a country from importing the usual amount of
foreign commodities, it will necessarily diminish the manufacture
of some of those commodities which were usually exported; and
although the total value of the productions of the country will
probably be but little altered, since the same capital will be
employed, yet they will not be equally abundant and cheap; and
considerable distress will be experienced through the change of
employments. If by the employment of £10,000 in the manufacture
of cotton goods for exportation, we imported annually 3,000 pair
of silk stockings of the value of £2,000, and by the interruption
of foreign trade we should be obliged to withdraw this capital
from the manufacture of cotton, and employ it ourselves in the
manufacture of stockings, we should still obtain stockings of the
value of £2,000 provided no part of the capital were destroyed;
but instead of having 3,000 pair, we might only have 2,500. In
the removal of the capital from the cotton to the stocking trade,
much distress might be experienced, but it would not considerably
impair the value of the national property, although it might
lessen the quantity of our annual productions.39*

19.3

The commencement of war after a long peace, or of peace after
a long war, generally produces considerable distress in trade. It
changes in a great degree the nature of the employments to which
the respective capitals of countries were before devoted; and
during the interval while they are settling in the situations
which new circumstances have made the most beneficial, much fixed
capital is unemployed, perhaps wholly lost, and labourers are
without full employment. The duration of this distress will be
longer or shorter according to the strength of that
disinclination which most men feel to abandon that employment of
their capital to which they have long been accustomed. It is
often protracted too by the restrictions and prohibitions, to
which the absurd jealousies which prevail between the different
States of the commercial commonwealth give rise.

19.4

The distress which proceeds from a revulsion of trade, is
often mistaken for that which accompanies a diminution of the
national capital, and a retrograde state of society; and it would
perhaps be difficult to point out any marks by which they may be
accurately distinguished.

19.5

When, however, such distress immediately accompanies a change
from war to peace, our knowledge of the existence of such a cause
will make it reasonable to believe, that the funds for the
maintenance of labour have rather been diverted from their usual
channel, than materially impaired, and that after temporary
suffering, the nation will again advance in prosperity. It must
be remembered too that the retrograde condition is always an
unnatural state of society. Man from youth grows to manhood, then
decays, and dies; but this is not the progress of nations. When
arrived to a state of the greatest vigour, their further advance
may indeed be arrested, but their natural tendency is to continue
for ages, to sustain undiminished their wealth, and their
population.

19.6

In rich and powerful countries, where large capitals are
invested in machinery, more distress will be experienced from a
revulsion in trade, than in poorer countries where there is
proportionally a much smaller amount of fixed, and a much larger
amount of circulating capital, and where consequently more work
is done by the labour of men. It is not so difficult to withdraw
a circulating as a fixed capital, from any employment in which it
may be engaged. It is often impossible to divert the machinery
which may have been erected for one manufacture, to the purposes
of another; but the clothing, the food, and the lodging of the
labourer in one employment may be devoted to the support of the
labourer in another; or the same labourer may receive the same
food, clothing and lodging, whilst his employment is changed.
This, however, is an evil to which a rich nation must submit; and
it would not be more reasonable to complain of it, than it would
be in a rich merchant to lament that his ship was exposed to the
dangers of the sea, whilst his poor neighbour's cottage was safe
from all such hazard.

19.7

From contingencies of this kind, though in an inferior
degree, even agriculture is not exempted. War, which in a
commercial country, interrupts the commerce of States, frequently
prevents the exportation of corn from countries where it can be
produced with little cost, to others not so favourably situated.
Under such circumstances an unusual quantity of capital is drawn
to agriculture, and the country which before imported becomes
independent of foreign aid. At the termination of the war, the
obstacles to importation are removed, and a competition
destructive to the home-grower commences, from which he is unable
to withdraw, without the sacrifice of a great part of his
capital. The best policy of the State would be, to lay a tax,
decreasing in amount from time to time, on the importation of
foreign corn, for a limited number of years, in order to afford
to the home-grower an opportunity to withdraw his capital
gradually from the land.40* In so doing, the country might not
be making the most advantageous distribution of its capital, but
the temporary tax to which it was subjected, would be for the
advantage of a particular class, the distribution of whose
capital was highly useful in procuring a supply of food when
importation was stopped. If such exertions in a period of
emergency were followed by risk of ruin on the termination of the
difficulty, capital would shun such an employment. Besides the
usual profits of stock, farmers would expect to be compensated
for the risk which they incurred of a sudden influx of corn; and,
therefore, the price to the consumer, at the seasons when he most
required a supply, would be enhanced, not only by the superior
cost of growing corn at home, but also by the insurance which he
would have to pay, in the price, for the peculiar risk to which
this employment of capital was exposed. Notwithstanding, then,
that it would be more productive of wealth to the country, at
whatever sacrifice of capital it might be done, to allow the
importation of cheap corn, it would, perhaps, be advisable to
charge it with a duty for a few years.

19.8

In examining the question of rent, we found, that with every
increase in the supply of corn, and with the consequent fall of
its price, capital would be withdrawn from the poorer land; and
land of a better description, which would then pay no rent, would
become the standard by which the natural price of corn would be
regulated. At £4 per quarter, land of an inferior quality, which
may be designated by No. 6, might be cultivated; at £3 10s. No.
5; at £3 No. 4, and so on. If corn, in consequence of permanent
abundance, fell to £3 10s., the capital employed on No. 6 would
cease to be employed; for it was only when corn was at £4 that it
could obtain the general profits, even without paying rent: it
would, therefore, be withdrawn to manufacture those commodities
with which all the corn grown on No. 6 would be purchased and
imported. In this employment it would necessarily be more
productive to its owner, or it would not be withdrawn from the
other; for if he could not obtain more corn by purchasing it with
a commodity which he manufactured, than he got from the land for
which he paid no rent, its price could not be under £4.

19.9

It has, however, been said, that capital cannot be withdrawn
from the land; that it takes the form of expenses, which cannot
be recovered, such as manuring, fencing, draining, &c., which are
necessarily inseparable from the land. This is in some degree
true; but that capital which consists of cattle, sheep, hay and
corn ricks, carts, &c. may be withdrawn; and it always becomes a
matter of calculation, whether these shall continue to be
employed on the land, notwithstanding the low price of corn, or
whether they shall be sold, and their value transferred to
another employment.

19.10

Suppose, however, the fact to be as stated, and that no part
of the capital could be withdrawn;41* the farmer would continue
to raise corn, and precisely the same quantity too, at whatever
price it might sell; for it could not be his interest to produce
less, and if he did not so employ his capital, he would obtain
from it no return whatever. Corn could not be imported, because
he would sell it lower than £3 10s. rather than not sell it at
all, and by the supposition the importer could not sell it under
that price. Although then the farmers, who cultivated land of
this quality, would undoubtedly be injured by the fall in the
exchangeable value of the commodity which they produced,—how
would the country be affected? We should have precisely the same
quantity of every commodity produced, but raw produce and corn
would sell at a much cheaper price. The capital of a country
consists of its commodities, and as these would be the same as
before, reproduction would go on at the same rate. This low price
of corn would however only afford the usual profits of stock to
the land, No. 5, which would then pay no rent, and the rent of
all better land would fall: wages would also fall, and profits
would rise.

19.11

However low the price of corn might fall: if capital could
not be removed from the land, and the demand did not increase, no
importation would take place; for the same quantity as before
would be produced at home. Although there would be a different
division of the produce, and some classes would be benefited, and
others injured, the aggregate of production would be precisely
the same, and the nation collectively would neither be richer nor
poorer.

19.12

But there is this advantage always resulting from a
relatively low price of corn,—that the division of the actual
production is more likely to increase the fund for the
maintenance of labour, inasmuch as more will be allotted, under
the name of profit, to the productive class, a less under the
name rent, to the unproductive class.

19.13

This is true, even if the capital cannot be withdrawn from
the land, and must be employed there, or not be employed at all:
but if great part of the capital can be withdrawn, as it
evidently could, it will be only withdrawn, when it will yield
more to the owner by being withdrawn than by being suffered to
remain where it was; it will be only withdrawn then, when it can
elsewhere be employed more productively both for the owner and
the public. He consents to sink that part of his capital which
cannot be separated from the land, because with that part which
he can take away, he can obtain a greater value, and a greater
quantity of raw produce, than by not sinking this part of the
capital. His case is precisely similar to that of a man who has
erected machinery in his manufactory at a great expense,
machinery which is afterwards so much improved upon by more
modern inventions, that the commodities manufactured by him very
much sink in value. It would be entirely a matter of calculation
with him whether he should abandon the old machinery, and erect
the more perfect, losing all the value of the old, or continue to
avail himself of its comparatively feeble powers. Who, under such
circumstances, would exhort him to forego the use of the better
machinery, because it would deteriorate or annihilate the value
of the old? Yet this is the argument of those who would wish us
to prohibit the importation of corn, because it will deteriorate
or annihilate that part of the capital of the farmer which is for
ever sunk in land. They do not see that the end of all commerce
is to increase production, and that by increasing production,
though you may occasion partial loss, you increase the general
happiness. To be consistent, they should endeavour to arrest all
improvements in agriculture and manufactures, and all inventions
of machinery; for though these contribute to general abundance,
and therefore to the general happiness, they never fail, at the
moment of their introduction, to deteriorate or annihilate the
value of a part of the existing capital of farmers and
manufacturers.42*

19.14

Agriculture, like all other trades, and particularly in a
commercial country, is subject to a reaction, which, in an
opposite direction, succeeds the action of a strong stimulus.
Thus, when war interrupts the importation of corn, its consequent
high price attracts capital to the land, from the large profits
which such an employment of it affords; this will probably cause
more capital to be employed, and more raw produce to be brought
to market than the demands of the country require. In such case,
the price of corn will fall from the effects of a glut, and much
agricultural distress will be produced, till the average supply
is brought to a level with the average demand.

Notes for this chapter

"Commerce enables us to obtain a commodity in the place where it is to be found, and to convey it to another where it is to be consumed; it therefore gives us the power of increasing the value of the commodity, by the whole difference between its price in the first of these places, and its price in the second." M. Say, p. 458, vol. ii. True, but how is this additional value given to it? By adding to the cost of production, first, the expenses of conveyence; secondly, the profit on the advance of capital made by the merchant. The commodity is only more valuable, for the same reasons that every other commodity may become more valuable, because more labour is expended on its production and conveyance, before it is purchased by the consumer. This must not be mentioned as one of the advantages of commerce. When the subject is more closely examined, it will be found that the whole benefits of commerce resolve themselves into the means which it gives us of acquiring, not more valuable objects, but more useful ones.

In the last volume to the supplement of the Encyclopaedia Britannica, article "Corn Laws and Trade," are the following excellent suggestions and observations: "If we shall at any future period, think of retracting our steps, in order to give time to withdraw capital from the cultivation of our poor soils, and to invest it in more lucrative employments, a gradually diminishing scale of duties may be adopted. The price at which foreign grain should be admitted duty free, may be made to decrease from 80s. its present limit, by 4s. or 5s. per quarter annually, till it reaches 50s. when the ports could safely be thrown open, and the restrictive system be for ever abolished. When this happy event shall have taken place, it will be no longer necessary to force nature. The capital and enterprise of the country will be turned into those departments of industry in which our physical situation, national character, or political institutions, fit us to excel. The corn of Poland, and the raw cotton of Carolina, will be exchanged for the wares of Birmingham, and the muslins of Glasgow. The genuine commercial spirit, that which permanently secures the property of nations, is altogether inconsistent with the dark and shallow policy of monopoly. The nations of the earth are like provinces of the same kingdom—a free and unfettered intercourse is alike productive of general and of local advantage." The whole article is well worthy of attention; it is very instructive, is ably written, and shews that the author is completely master of the subject.

Whatever capital becomes fixed on the land, must necessarily be the landlord's, and not the tenants, at the expiration of the lease. Whatever compensation the landlord may receive for this capital, on re-letting his land, will appear in the form of rent; but no rent will be paid, if, with a given capital, more corn can be obtained from abroad, than can be grown on this land at home. If the circumstances of the society should require corn to be imported, and 1,000 quarters can be obtained by the employment of a given capital, and if this land, with the employment of the same capital, will yield 1,100 quarters, 100 quarters will necessarily go to rent; but if 1,200 can be got from abroad, then this land will go out of circulation, for it will not then yield even the general rate of profit. But this is no disadvantage, however great the capital may have been, that had been expended on the land. Such capital is spent with a view to augment the produce—that, it should be remembered, is the end; of what importance then can it be to the society, whether half its capital be sunk in value, or even annihiliated, if they obtain a greater annual quantity of production? Those who deplore the loss of capital in this case, are for sacrificing the end to the means.

Among the most able of the publications, on the impolicy of restricting the Importation of Corn, may be classed Major Torrens' Essay on the External Corn Trade. His arguments appear to me to be unanswered, and to be unanswerable.

End of Notes

"A man is rich or poor," says Adam Smith, "according to the
degree in which he can afford to enjoy the necessaries,
conveniences, and amusements of human life."

20.2

Value, then, essentially differs from riches, for value
depends not on abundance, but on the difficulty or facility of
production. The labour of a million of men in manufactures, will
always produce the same value, but will not always produce the
same riches. By the invention of machinery, by improvements in
skill, by a better division of labour, or by the discovery of new
markets, where more advantageous exchanges may be made, a million
of men may produce double, or treble the amount of riches, of
"necessaries, conveniences, and amusements," in one state of
society, that they could produce in another, but they will not on
that account add any thing to value; for every thing rises or
falls in value, in proportion to the facility or difficulty of
producing it, or, in other words, in proportion to the quantity
of labour employed on its production. Suppose with a given
capital, the labour of a certain number of men produced 1,000
pair of stockings, and that by inventions in machinery, the same
number of men can produce 2,000 pair, or that they can continue
to produce 1,000 pair, and can produce besides 500 hats; then the
value of the 2,000 pair of stockings, or of the 1,000 pair of
stockings, and 500 hats, will be neither more nor less than that
of the 1,000 pair of stockings before the introduction of
machinery; for they will be the produce of the same quantity of
labour. But the value of the general mass of commodities will
nevertheless be diminished; for, although the value of the
increased quantity produced, in consequence of the improvement,
will be the same exactly as the value would have been of the less
quantity that would have been produced, had no improvement taken
place, an effect is also produced on the portion of goods still
unconsumed, which were manufactured previously to the
improvement; the value of those goods will be reduced, inasmuch
as they must fall to the level, quantity for quantity, of the
goods produced under all the advantages of the improvement: and
the society will, notwithstanding the increased quantity of
commodities, notwithstanding its augmented riches, and its
augmented means of enjoyment, have a less amount of value. By
constantly increasing the facility of production, we constantly
diminish the value of some of the commodities before produced,
though by the same means we not only add to the national riches,
but also to the power of future production. Many of the errors in
political economy have arisen from errors on this subject, from
considering an increase of riches, and an increase of value, as
meaning the same thing, and from unfounded notions as to what
constituted a standard measure of value. One man considers money
as a standard of value, and a nation grows richer or poorer,
according to him, in proportion as its commodities of all kinds
can exchange for more or less money. Others represent money as a
very convenient medium for the purpose of barter, but not as a
proper measure by which to estimate the value of other things;
the real measure of value according to them, is corn,43*
and a
country is rich or poor, according as its commodities will
exchange for more or less corn.44*
There are others again, who
consider a country rich or poor, according to the quantity of
labour that it can purchase. But why should gold, or corn, or
labour, be the standard measure of value, more than coals or
iron?—more than cloth, soap, candles, and the other necessaries
of the labourer?—why, in short, should any commodity, or all
commodities together, be the standard, when such a standard is
itself subject to fluctuations in value? Corn, as well as gold,
may from difficulty or facility of production, vary 10, 20, or 30
per cent, relatively to other things; why should we always say,
that it is those other things which have varied, and not the
corn? That commodity is alone invariable, which at all times
requires the same sacrifice of toil and labour to produce it. Of
such a commodity we have no knowledge, but we may hypothetically
argue and speak about it, as if we had; and may improve our
knowledge of the science, by shewing distinctly the absolute
inapplicability of all the standards which have been hitherto
adopted. But supposing either of these to be a correct standard
of value, still it would not be a standard of riches, for riches
do not depend on value. A man is rich or poor, according to the
abundance of necessaries and luxuries which he can command; and
whether the exchangeable value of these for money, for corn, or
for labour, be high or low, they will equally contribute to the
enjoyment of their possessor. It is through confounding the ideas
of value and wealth, or riches that it has been asserted, that by
diminishing the quantity of commodities, that is to say of the
necessaries, conveniences, and enjoyments of human life, riches
may be increased. If value were the measure of riches, this could
not be denied, because by scarcity the value of commodities is
raised; but if Adam Smith be correct, if riches consist in
necessaries and enjoyments, then they cannot be increased by a
diminution of quantity.

20.3

It is true, that the man in possession of a scarce commodity
is richer, if by means of it he can command more of the
necessaries and enjoyments of human life; but as the general
stock out of which each man's riches are drawn, is diminished in
quantity, by all that any individual takes from it, other men's
shares must necessarily be reduced in proportion as this favoured
individual is able to appropriate a greater quantity to himself.

20.4

Let water become scarce, says Lord Lauderdale, and be
exclusively possessed by an individual, and you will increase his
riches, because water will then have value; and if wealth be the
aggregate of individual riches, you will by the same means also
increase wealth. You undoubtedly will increase the riches of this
individual, but inasmuch as the farmer must sell a part of his
corn, the shoemaker a part of his shoes, and all men give up a
portion of their possessions for the sole purpose of supplying
themselves with water, which they before had for nothing, they
are poorer by the whole quantity of commodities which they are
obliged to devote to this purpose, and the proprietor of water is
benefited precisely by the amount of their loss. The same
quantity of water, and the same quantity of commodities, are
enjoyed by the whole society, but they are differently
distributed. This is, however, supposing rather a monopoly of
water than a scarcity of it. If it should be scarce, then the
riches of the country and of individuals would be actually
diminished, inasmuch as it would be deprived of a portion of one
of its enjoyments. The farmer would not only have less corn to
exchange for the other commodities which might be necessary or
desirable to him, but he, and every other individual, would be
abridged in the enjoyment of one of the most essential of their
comforts. Not only would there be a different distribution of
riches, but an actual loss of wealth.

20.5

It may be said, then, of two countries possessing precisely
the same quantity of all the necessaries and comforts of life,
that they are equally rich, but the value of their respective
riches would depend on the comparative facility or difficulty
with which they were produced. For if an improved piece of
machinery should enable us to make two pair of stockings, instead
of one, without additional labour, double the quantity would be
given in exchange for a yard of cloth. If a similar improvement
be made in the manufacture of cloth, stockings and cloth will
exchange in the same proportions as before, but they will both
have fallen in value; for in exchanging them for hats, for gold,
or other commodities in general, twice the former quantity must
be given. Extend the improvement to the production of gold, and
every other commodity; and they will all regain their former
proportions. There will be double the quantity of commodities
annually produced in the country, and therefore the wealth of the
country will be doubled, but this wealth will not have increased
in value.

20.6

Although Adam Smith has given the correct description of
riches, which I have more than once noticed, he afterwards
explains them differently, and says, "that a man must be rich or
poor according to the quantity of labour which he can afford to
purchase." Now, this description differs essentially from the
other, and is certainly incorrect; for, suppose the mines were to
become more productive, so that gold and silver fell in value,
from the greater facility of their production; or that velvets
were to be manufactured with so much less labour than before,
that they fell to half their former value; the riches of all
those who purchased those commodities would be increased; one man
might increase the quantity of his plate, another might buy
double the quantity of velvet; but with the possession of this
additional plate and velvet, they could employ no more labour
than before; because, as the exchangeable value of velvet and of
plate would be lowered, they must part with proportionally more
of these species of riches to purchase a day's labour. Riches,
then, cannot be estimated by the quantity of labour which they
can purchase.

20.7

From what has been said, it will be seen that the wealth of a
country may be increased in two ways: it may be increased by
employing a greater portion of revenue in the maintenance of
productive labour,—which will not only add to the quantity, but
to the value of the mass of commodities; or it may be increased,
without employing any additional quantity of labour, by making
the same quantity more productive,—which will add to the
abundance, but not to the value of commodities.

20.8

In the first case, a country would not only become rich, but
the value of its riches would increase. It would become rich by
parsimony; by diminishing its expenditure on objects of luxury
and enjoyment; and employing those savings in reproduction.

20.9

In the second case, there will not necessarily be either any
diminished expenditure on luxuries and enjoyments, or any
increased quantity of productive labour employed, but with the
same labour more would be produced; wealth would increase, but
not value. Of these two modes of increasing wealth, the last must
be preferred, since it produces the same effect without the
privation and diminution of enjoyments, which can never fail to
accompany the first mode. Capital is that part of the wealth of a
country which is employed with a view to future production, and
may be increased in the same manner as wealth. An additional
capital will be equally efficacious in the production of future
wealth, whether it be obtained from improvements in skill and
machinery, or from using more revenue reproductively; for wealth
always depends on the quantity of commodities produced, without
any regard to the facility with which the instruments employed in
production may have been procured. A certain quantity of clothes
and provisions will maintain and employ the same number of men,
and will therefore procure the same quantity of work to be done,
whether they be produced by the labour of 100 or 200 men; but
they will be of twice the value if 200 have been employed on
their production.

20.10

M. Say, notwithstanding the corrections he has made in the
fourth and last edition of his work, "Traité d'Economie
Politique," appears to me to have been singularly unfortunate in
his definition of riches and value. He considers these two terms
as synonymous, and that a man is rich in proportion as he
increases the value of his possessions, and is enabled to command
an abundance of commodities. "The value of incomes is then
increased," he observes, "if they can procure, it does not
signify by what means, a greater quantity of products." According
to M. Say, if the difficulty of producing cloth were to double,
and consequently cloth was to exchange for double the quantity of
the commodities for which it exchanged before, it would be
doubled in value, to which I give my fullest assent; but if there
were any peculiar facility in producing the commodities, and no
increased difficulty in producing cloth, and cloth should in
consequence exchange as before for double the quantity of
commodities, M. Say would still say that cloth had doubled in
value, whereas according to my view of the subject, he should
say, that cloth retained its former value, and those particular
commodities had fallen to half their former value. Must not M.
Say be inconsistent with himself when he says, that by facility
of production, two sacks of corn may be produced by the same
means that one was produced before, and that each sack will
therefore fall to half its former value, and yet maintain that
the clothier who exchanges his cloth for two sacks of corn, will
obtain double the value he before obtained, when he could only
get one sack in exchange for his cloth. If two sacks be of the
value that one was of before, he evidently obtains the same value
and no more,—he gets, indeed, double the quantity of riches—double the quantity of utility—double the quantity of what Adam
Smith calls value in use, but not double the quantity of value,
and therefore M. Say cannot be right in considering value,
riches, and utility to be synonymous. Indeed, there are many
parts of M. Say's work to which I can confidently refer in
support of the doctrine which I maintain, respecting the
essential difference between value and riches, although it must
be confessed that there are also various other passages in which
a contrary doctrine is maintained. These passages I cannot
reconcile, and I point them out by putting them in opposition to
each other, that M. Say may, if he should do me the honour to
notice these observations in any future edition of his work, give
such explanations of his views as may remove the difficulty,
which many others, as well as myself, feel in our endeavours to
expound them.

1. In the exchange of two products, we only in fact exchange the
productive services which have served to create them... p. 504.

5. The value of incomes is then increased, if they can procure
(it does not signify by what means,) a greater quantity of
product.

2. There is no real dearness but that which arises from the cost
of production. A thing really dear, is that which cost, much in
producing....... 457.

6. Price is the measure of the value of things, and their value
is the measure of their utility. 2 Vol......p. 4

3. The value of all the productive services that must be consumed
to create a product, constitute the cost of production of that
product...... 505.

7. Exchanges made freely, shew at the time, in the place, and in
the state of society in which we are, the value which men attach
to the things exchanged...... 466.

4. It is utility which determines the demand for a commodity, but
it is the cost of its production which limits the extent of its
demand. When its utility does not elevate its value to the level
of the cost of production, the thing is not worth what it cost;
it is a proof that the productive services might be employed to
create a commodity of a superior value. The possessors of
productive funds, that is to say, those who have the disposal of
labour, of capital or land, are perpetually occupied in comparing
the cost of production with the value of the things produced, or
which comes to the same thing, in comparing the value of
different commodities with each other; because the cost of
production is nothing else but the value of productive services,
consumed in forming a production; and the value of a productive
service is nothing else than the value of the commodity, which is
the result. The value of a commodity, the value of a productive
service, the value of the cost of production are all, then,
similar values when every thing is left to its natural course.

8. To produce, is to create value, by giving or increasing the
utility of a thing, and thereby establishing a demand for it,
which is the first cause of its value. Vol. 2.... 487.

9. Utility being created, constitutes a product. The exchangeable
value which results, is only the measure of this utility, the
measure of the production which has taken place...490.

10. The utility which people of a particular country find in a
product can no otherwise be appreciated than by the price which
they give for it..... 502.

11. This price, is the measure of the utility, which it has in
the judgment of men; of the satisfaction which they derive from
consuming it, because they would not prefer consuming this
utility, if for the price which it cost they could acquire a
utility which would give them more
satisfaction...506.

12. The quantity of all other commodities which a person can
immediately obtain in exchange for the commodity of which he
wishes to dispose, is at all times a value not to be disputed.
Vol. 2.... 4

20.11

If there is no real dearness but that which arises from cost
of production, (see 2.) how can a commodity be said to rise in
value, (see 5.) if its cost of production be not increased? and
merely because it will exchange for more of a cheap commodity—for
more of a commodity the cost of production of which has
diminished? When I give 2,000 times more cloth for a pound of
gold than I give for a pound of iron, does it prove that I attach
2,000 times more utility to gold than I do to iron? certainly
not; it proves only as admitted by M. Say, (see 4.) that the cost
of production of gold is 2,000 times greater than the cost of
production of iron. If the cost of production of the two metals
were the same, I should give the same price for them; but if
utility were the measure of value, it is probable I should give
more for the iron. It is the competition of the producers "who
are perpetually employed in comparing the cost of production with
the value of the thing produced," (see 4.) which regulates the
value of different commodities. If, then, I give one shilling for
a loaf, and 21 shillings for a guinea, it is no proof that this
in my estimation is the comparative measure of their utility.

20.12

In No. 4, M. Say maintains with scarcely any variation, the
doctrine which I hold concerning value. In his productive
services, he includes the services rendered by land, capital, and
labour; in mine I include only capital and labour, and wholly
exclude land. Our difference proceeds from the different view
which we take of rent: I always consider it as the result of a
partial monopoly, never really regulating price, but rather as
the effect of it. If all rent were relinquished by landlords, I
am of opinion, that the commodities produced on the land would be
no cheaper, because there is always a portion of the same
commodities produced on land, for which no rent is or can be
paid, as the surplus produce is only sufficient to pay the
profits of stock.

20.13

To conclude, although no one is more disposed than I am to
estimate highly the advantage which results to all classes of
consumers, from the real abundance and cheapness of commodities,
I cannot agree with M. Say, in estimating the value of a
commodity, by the abundance of other commodities for which it
will exchange; I am of the opinion of a very distinguished
writer, M. Destutt de Tracy, who says, that "To measure any one
thing is to compare it with a determinate quantity of that same
thing which we take for a standard of comparison, for unity. To
measure, then to ascertain a length, a weight, a value, is to
find how many times they contain metres, grammes, francs, in a
word, unities of the same description." A franc is not a measure
of value for any thing, but for a quantity of the same metal of
which francs are made, unless francs, and the thing to be
measured, can be referred to some other measure which is common
to both. This, I think, they can be, for they are both the result
of labour; and, therefore, labour is a common measure, by which
their real as well as their relative value may be estimated. This
also, I am happy to say, appears to be M. Destutt de Tracy's
opinion.45*
He says, "as it is certain that our physical and
moral faculties are alone our original riches, the employment of
those faculties, labour of some kind, is our only original
treasure, and that it is always from this employment, that all
those things are created which we call riches, those which are
the most necessary, as well as those which are the most purely
agreeable. It is certain too, that all those things only
represent the labour which has created them, and if they have a
value, or even two distinct values, they can only derive them
from that of the labour from which they emanate."

20.14

M. Say, in speaking of the excellences and imperfections of
the great work of Adam Smith, imputes to him, as an error, that,
"he attributes to the labour of man alone, the power of producing
value. A more correct analysis shews us that value is owing to
the action of labour, or rather the industry of man, combined
with the action of those agents which nature supplies, and with
that of capital. His ignorance of this principle prevented him
from establishing the true theory of the influence of machinery
in the production of riches."

20.15

In contradiction to the opinion of Adam Smith, M. Say, in the
fourth chapter, speaks of the value which is given to commodities
by natural agents, such as the sun, the air, the pressure of the
atmosphere, &c., which are sometimes substituted for the labour
of man, and sometimes concur with him in producing.46*
But
these natural agents, though they add greatly to value in use,
never add exchangeable value, of which M. Say is speaking, to a
commodity: as soon as by the aid of machinery, or by the
knowledge of natural philosophy, you oblige natural agents to do
the work which was before done by man, the exchangeable value of
such work falls accordingly. If ten men turned a corn mill, and
it be discovered that by the assistance of wind, or of water, the
labour of these ten men may be spared, the flour which is the
produce partly of the work performed by the mill, would
immediately fall in value, in proportion to the quantity of
labour saved; and the society would be richer by the commodities
which the labour of the ten men could produce, the funds destined
for their maintenance being in no degree impaired. M. Say
constantly overlooks the essential difference that there is
between value in use, and value in exchange.

20.16

M. Say accuses Dr. Smith of having overlooked the value which
is given to commodities by natural agents, and by machinery,
because he considered that the value of all things was derived
from the labour of man; but it does not appear to me, that this
charge is made out; for Adam Smith nowhere undervalues the
services which these natural agents and machinery perform for us,
but he very justly distinguishes the nature of the value which
they add to commodities—they are serviceable to us, by
increasing the abundance of productions, by making men richer, by
adding to value in use; but as they perform their work
gratuitously, as nothing is paid for the use of air, of heat, and
of water, the assistance which they afford us, adds nothing to
value in exchange.

Notes for this chapter

Adam Smith says, "that the difference between the real and the nominal price of commodities and labour, is not a matter of mere speculation, but may sometimes be of considerable use in practice." I agree with him; but the real price of labour and commodities, is no more to be ascertained by their price in goods, Adam Smith's real measure, than by their price in gold and silver, his nominal measure. The labourer is only paid a really high price for his labour, when his wages will purchase the produce of a great deal of labour.

Elemens d'Idelogie, Vol. iv. p. 99.—In this work M. de Tracy has given a useful and an able treatise on the general principles of Political Economy, and I am sorry to be obliged to add, that he supports, by his authority, the definitions which M. Say has given of the words "value," "riches," and "utility."

"The first man who knew how to soften metals by fire, is not the creator of the value which that process adds to the melted metal. That value is the result of the physical action of fire added to the industry and capital of those who availed themselves of this knowledge."

"From this error Smith has drawn this false result, that the value of all productions represents the recent or former labour of man, or, in other words, that riches are nothing else but accumulated labour; from which, by a second consequence equally false, labour is the sole measure of riches, or of the value of productions." The inference with which M. Say concludes are his own, and not Dr. Smith's; they are correct if no distinction be made between value and riches, and in this passage M. Say makes none; but though Adam Smith, who defined riches to consists in the abundance of necessaries, conveniences and enjoyments of human life, would have allowed that machines and natural agents might very greatly add to the riches of a country, he would not have allowed that they add any thing to the value of those riches.

End of Notes

From the account which has been given of the profits of stock,
it will appear, that no accumulation of capital will permanently
lower profits, unless there be some permanent cause for the rise
of wages. If the funds for the maintenance of labour were
doubled, trebled, or quadrupled, there would not long be any
difficulty in procuring the requisite number of hands, to be
employed by those funds; but owing to the increasing difficulty
of making constant additions to the food of the country, funds of
the same value would probably not maintain the same quantity of
labour. If the necessaries of the workman could be constantly
increased with the same facility, there could be no permanent
alteration in the rate of profits or wages, to whatever amount
capital might be accumulated. Adam Smith, however, uniformly
ascribes the fall of profits to accumulation of capital, and to
the competition which will result from it, without ever adverting
to the increasing difficulty of providing food for the additional
number of labourers which the additional capital will employ.
"The increase of stock," he says, "which raises wages, tends to
lower profit. When the stocks of many rich merchants are turned
into the same trade, their mutual competition naturally tends to
lower its profit; and when there is a like increase of stock in
all the different trades carried on in the same society, the same
competition must produce the same effect in all." Adam Smith
speaks here of a rise of wages, but it is of a temporary rise,
proceeding from increased funds before the population is
increased; and he does not appear to see, that at the same time
that capital is increased, the work to be effected by capital, is
increased in the same proportion. M. Say has, however, most
satisfactorily shewn, that there is no amount of capital which
may not be employed in a country, because demand is only limited
by production. No man produces, but with a view to consume or
sell, and he never sells, but with an intention to purchase some
other commodity, which may be immediately useful to him, or which
may contribute to future production. By producing, then, he
necessarily becomes either the consumer of his own goods, or the
purchaser and consumer of the goods of some other person. It is
not to be supposed that he should, for any length of time, be
ill-informed of the commodities which he can most advantageously
produce, to attain the object which he has in view, namely, the
possession of other goods; and, therefore, it is not probable
that he will continually produce a commodity for which there is
no demand.47*

21.2

There cannot, then, be accumulated in a country any amount of
capital which cannot be employed productively, until wages rise
so high in consequence of the rise of necessaries, and so little
consequently remains for the profits of stock, that the motive
for accumulation ceases.48*
While the profits of stock are
high, men will have a motive to accumulate. Whilst a man has any
wished-for gratification unsupplied, he will have a demand for
more commodities; and it will be an effectual demand while he has
any new value to offer in exchange for them. If ten thousand
pounds were given to a man having £100,000 per annum, he would
not lock it up in a chest, but would either increase his expenses
by £10,000; employ it himself productively, or lend it to some
other person for that purpose; in either case, demand would be
increased, although it would be for different objects. If he
increased his expenses, his effectual demand might probably be
for buildings, furniture, or some such enjoyment. If he employed
his £10,000 productively, his effectual demand would be for food,
clothing, and raw material, which might set new labourers to
work; but still it would be demand.49*

21.3

Productions are always bought by productions, or by services;
money is only the medium by which the exchange is effected. Too
much of a particular commodity may be produced, of which there
may be such a glut in the market, as not to repay the capital
expended on it; but this cannot be the case with respect to all
commodities; the demand for corn is limited by the mouths which
are to eat it, for shoes and coats by the persons who are to wear
them; but though a community, or a part of a community, may have
as much corn, and as many hats and shoes, as it is able or may
wish to consume, the same cannot be said of every commodity
produced by nature or by art. Some would consume more wine, if
they had the ability to procure it. Others having enough of wine,
would wish to increase the quantity or improve the quality of
their furniture. Others might wish to ornament their grounds, or
to enlarge their houses. The wish to do all or some of these is
implanted in every man's breast; nothing is required but the
means, and nothing can afford the means, but an increase of
production. If I had food and necessaries at my disposal, I
should not be long in want of workmen who would put me in
possession of some of the objects most useful or most desirable
to me.

21.4

Whether these increased productions, and the consequent
demand which they occasion, shall or shall not lower profits,
depends solely on the rise of wages; and the rise of wages,
excepting for a limited period, on the facility of producing the
food and necessaries of the labourer. I say excepting for a
limited period, because no point is better established, than that
the supply of labourers will always ultimately be in proportion
to the means of supporting them.

21.5

There is only one case, and that will be temporary, in which
the accumulation of capital with a low price of food may be
attended with a fall of profits; and that is, when the funds for
the maintenance of labour increase much more rapidly than
population;—wages will then be high, and profits low. If every
man were to forego the use of luxuries, and be intent only on
accumulation, a quantity of necessaries might be produced, for
which there could not be any immediate consumption. Of
commodities so limited in number, there might undoubtedly be an
universal glut, and consequently there might neither be demand
for an additional quantity of such commodities, nor profits on
the employment of more capital. If men ceased to consume, they
would cease to produce. This admission does not impugn the
general principle. In such a country as England, for example, it
is difficult to suppose that there can be any disposition to
devote the whole capital and labour of the country to the
production of necessaries only.

21.6

When merchants engage their capitals in foreign trade, or in
the carrying trade, it is always from choice, and never from
necessity: it is because in that trade their profits will be
somewhat greater than in the home trade.

21.7

Adam Smith has justly observed "that the desire of food is
limited in every man by the narrow capacity of the human stomach,
but the desire of the conveniences and ornaments of building,
dress, equipage, and household furniture, seems to have no limit
or certain boundary." Nature then has necessarily limited the
amount of capital which can at any one time be profitably engaged
in agriculture, but she has placed no limits to the amount of
capital that may be employed in procuring "the conveniences and
ornaments" of life. To procure these gratifications in the
greatest abundance is the object in view, and it is only because
foreign trade, or the carrying trade, will accomplish it better,
that men engage in them in preference to manufacturing the
commodities required, or a substitute for them, at home. If,
however, from peculiar circumstances, we were precluded from
engaging capital in foreign trade, or in the carrying trade, we
should, though with less advantage, employ it at home; and while
there is no limit to the desire of "conveniences, ornaments of
building, dress, equipage, and household furniture," there can be
no limit to the capital that may be employed in procuring them,
except that which bounds our power to maintain the workmen who
are to produce them.

21.8

Adam Smith, however, speaks of the carrying trade as one, not
of choice, but of necessity; as if the capital engaged in it
would be inert if not so employed, as if the capital in the home
trade could overflow, if not confined to a limited amount. He
says, "when the capital stock of any country is increased to such
a degree, that it cannot be all employed in supplying the
consumption, and supporting the productive labour of that
particular country, the surplus part of it naturally disgorges
itself into the carrying trade, and is employed in performing the
same offices to other countries."

21.9

"About ninety-six thousand hogsheads of tobacco are annually
purchased with a part of the surplus produce of British industry.
But the demand of Great Britain does not require, perhaps, more
than fourteen thousand. If the remaining eighty two thousand,
therefore, could not be sent abroad and exchanged for something
more in demand at home, the importation of them would cease
immediately, and with it the productive labour of all the
inhabitants of Great Britain, who are at present employed in
preparing the goods with which these eighty-two thousand
hogsheads are annually purchased." But could not this portion of
the productive labour of Great Britain be employed in preparing
some other sort of goods, with which something more in demand at
home might be purchased? And if it could not, might we not employ
this productive labour, though with less advantage, in making
those goods in demand at home, or at least some substitute for
them? If we wanted velvets, might we not attempt to make velvets;
and if we could not succeed, might we not make more cloth, or
some other object desirable to us?

21.10

We manufacture commodities, and with them buy goods abroad,
because we can obtain a greater quantity than we could make at
home. Deprive us of this trade, and we immediately manufacture
again for ourselves. But this opinion of Adam Smith is at
variance with all his general doctrines on this subject. "If a
foreign country can supply us with a commodity cheaper than we
ourselves can make it, better buy it of them with some part of
the produce of our own industry, employed in a way in which we
have some advantage. The general industry of the country being
always in proportion to the capital which employs it, will not
thereby be diminished, but only left to find out the way in which
it can be employed with the greatest advantage."

21.11

Again. "Those, therefore, who have the command of more food
than they themselves can consume, are always willing to exchange
the surplus, or, what is the same thing, the price of it, for
gratifications of another kind. What is over and above satisfying
the limited desire, is given for the amusement of those desires
which cannot be satisfied, but seem to be altogether endless. The
poor, in order to obtain food, exert themselves to gratifying
those fancies of the rich; and to obtain it more certainly, they
vie with one another in the cheapness and perfection of their
work. The number of workmen increases with the increasing
quantity of food, or with the growing improvement and cultivation
of the lands; and as the nature of their business admits of the
utmost subdivisions of labours, the quantity of materials which
they can work up increases in a much greater proportion than
their numbers. Hence arises a demand for every sort of material
which human invention can employ, either usefully or
ornamentally, in building, dress, equipage, or household
furniture; for the fossils and minerals contained in the bowels
of the earth, the precious metals, and the precious stones."

21.12

It follows then from these admissions that there is no limit
to demand—no limit to the employment of capital while it yields
any profit, and that however abundant capital may become, there
is no other adequate reason for a fall of profit but a rise of
wages, and further it may be added, that the only adequate and
permanent cause for the rise of wages is the increasing
difficulty of providing food and necessaries for the increasing
number of workmen.

21.13

Adam Smith has justly observed, that it is extremely
difficult to determine the rate of the profits of stock. "Profit
is so fluctuating, that even in a particular trade, and much more
in trades in general, it would be difficult to state the average
rate of it. To judge of what it may have been formerly, or in
remote periods of time, with any degree of precision must be
altogether impossible." Yet since it is evident that much will be
given for the use of money, when much can be made by it, he
suggests that "the market rate of interest will lead us to form
some notion of the rate of profits, and the history of the
progress of interest afford us that of the progress of profits."
Undoubtedly if the market rate of interest could be accurately
known for any considerable period, we should have a tolerably
correct criterion, by which to estimate the progress of profits.

21.14

But in all countries, from mistaken notions of policy, the
State has interfered to prevent a fair and free market rate of
interest, by imposing heavy and ruinous penalties on all those
who shall take more than the rate fixed by law. In all countries
probably these laws are evaded, but records give us little
information on this head, and point out rather the legal and
fixed rate, than the market rate of interest. During the present
war, Exchequer and Navy Bills have been frequently at so high a
discount, as to afford the purchasers of them 7, 8 per cent, or a
greater rate of interest for their money. Loans have been raised
by Government at an interest exceeding 6 per cent and individuals
have been frequently obliged, by indirect means, to pay more than
10 per cent for the interest of money; yet during this same
period the legal rate of interest has been uniformly at 5 per
cent. Little dependence for information then can be placed on
that which is the fixed and legal rate of interest, when we find
it may differ so considerably from the market rate. Adam Smith
informs us, that from the 37th of Henry VIII. to 21st of James I.
10 per cent continued to be the legal rate of interest. Soon
after the Restoration it was reduced to 6 per cent, and by the
12th of Anne, to 5 per cent. He thinks the legal rate followed,
and did not precede the market rate of interest. Before the
American war, Government borrowed at 3 per cent, and the people
of credit in the capital, and in many other parts of the kingdom
at 3½, 4, and 4½ per cent.

21.15

The rate of interest, though ultimately and permanently
governed by the rate of profit, is however subject to temporary
variations from other causes. With every fluctuation in the
quantity and value of money, the prices of commodities naturally
vary. They vary also, as we have already shewn, from the
alteration in the proportion of supply to demand, although there
should not be either greater facility or difficulty of
production. When the market prices of goods fall from an abundant
supply, from a diminished demand, or from a rise in the value of
money, a manufacturer naturally accumulates an unusual quantity
of finished goods, being unwilling to sell them at very depressed
prices. To meet his ordinary payments, for which he used to
depend on the sale of his goods, he now endeavours to borrow on
credit, and is often obliged to give an increased rate of
interest. This, however, is but of temporary duration; for either
the manufacturer's expectations were well grounded, and the
market price of his commodities rises, or he discovers that there
is a permanently diminished demand, and he no longer resists the
course of affairs: prices fall, and money and interest regain
their real value. If by the discovery of a new mine, by the
abuses of banking, or by any other cause, the quantity of money
be greatly increased, its ultimate effect is to raise the prices
of commodities in proportion to the increased quantity of money;
but there is probably always an interval, during which some
effect is produced on the rate of interest.

21.16

The price of funded property is not a steady criterion by
which to judge of the rate of interest. In time of war, the stock
market is so loaded by the continual loans of Government, that
the price of stock has not time to settle at its fair level,
before a new operation of funding takes place, or it is affected
by anticipation of political events. In time of peace, on the
contrary, the operations of the sinking fund, the unwillingness,
which a particular class of persons feel to divert their funds to
any other employment than that to which they have been
accustomed, which they think secure, and in which their dividends
are paid with the utmost regularity, elevates the price of stock,
and consequently depresses the rate of interest on these
securities below the general market rate. It is observable too,
that for different securities, Government pays very different
rates of interest. Whilst £100 capital in 5 per cent stock is
selling for £95, an exchequer bill of £100, will be sometimes
selling for £100 5s., for which exchequer bill, no more interest
will be annually paid than £4 11s. 3d.: one of these securities
pays to a purchaser at the above prices, an interest of more than
5¼ per cent, the other but little more than 4¼; a certain
quantity of these exchequer bills is required as a safe and
marketable investment for bankers; if they were increased much
beyond this demand, they would probably be as much depreciated as
the 5 per cent stock. A stock paying 3 per cent per annum will
always sell at a proportionally greater price than stock paying 5
per cent, for the capital debt of neither can be discharged but
at par, or £100 money for £100 stock. The market rate of interest
may fall to 4 per cent, and Government would then pay the holder
of 5 per cent stock at par, unless he consented to take 4 per
cent or some diminished rate of interest under 5 per cent: they
would have no advantage from so paying the holder of 3 per cent
stock, till the market rate of interest had fallen below 3 per
cent per annum. To pay the interest on the national debt, large
sums of money are withdrawn from circulation four times in the
year for a few days. These demands for money being only
temporary, seldom affect prices; they are generally surmounted by
the payment of a large rate of interest.50*

Notes for this chapter

Adam Smith speaks of Holland, as affording an instance of the fall of profits from the accumulation of capital, and from every employment being consequently overcharged. "The Government there borrow at 2 per cent, and private people of good credit, at 3 per cent." But it should be remembered, that Holland was obliged to import almost all the corn which she consumed, and by imposing heavy taxes on the necessaries of the labourer, she further raised the wages of labour. These facts will sufficiently account for the low rate of profits and interest in Holland.

Is the following quite consistent with M. Say's principle? "The more disposable capitals are abundant in proportion to the extent of employment for them, the more will the rate of interest on loans of capital
fall."—Vol. ii. p. 108. If capital to any extent can be employed by a country, how can it be said to be abundant, compared with the extent of employment for it?

Adam Smith says, that "When the produce of any particular branch of industry exceeds what the demand of the country requires, the surplus must be sent abroad, and exchanged for something for which there is a demand at home. Without such exportation, a part of the productive labour of the country must cease, and the value of its annual produce diminish. The land and labour of Great Britain produce generally more corn, woollens, and hardware, than the demand of the home market requires. The surplus part of them, therefore, must be sent abroad, and exchanged for something for which there is a demand at home. It is only by means of such exportation, that this surplus can acquire a value sufficient to compensate the labour and expense of producing it." One would be led to think by the above passage, that Adam Smith concluded we were under some necessity of producing a surplus of corn, woollen goods, and hardware, and that the capital which produced them could not be otherwise employed. It is, however, always a matter of choice in what way a capital shall be employed, and therefore there can never, for any length of time be a surplus of any commodity; for if there were, it would fall below its natural price, and capital would be removed to some more profitable employment. No writer has more satisfactorily and ably shewn than Dr. Smith, the tendency of capital to move from employments in which the goods produced do not repay by their price the whole expenses, including the ordinary profits, of producing and bringing them to market.*

"All kinds of public loans", observes M. Say, "are attended with the inconvenience of withdrawing capital, or portions of capital, from productive employments, to devote them to consumption; and when they take place in a country, the Government of which does not inspire much confidence, they have the further inconvenience of raising the interest of capital. Who would lend at 5 per cent per annum to agriculture, to manufacturers and to commerce, when a borrower may be found ready to pay an interest of 7 or 8 per cent? That sort of income, which is called profit of stock, would rise then at the expense of the consumer. Consumption would be reduced, by the rise in the price of produce; and the other productive services would be less in demand, less well paid. The whole nation, capitalists excepted, would be the sufferers from such a state of things." To the question: "who would lend money to farmers, manufacturers, and merchants, at 5 per cent per annum, when another borrower, having little credit, would give 7 or 8?" I reply, that every prudent and reasonable man would. Because the rate of interest is 7 or 8 per cent there, where the lender runs extraordinary risk, is this any reason that it should be equally high in those places where they are secured from such risks? M. Say allows, that the rate of interest depends on the rate of profits; but it does not therefore follow, that the rate of profits depends on the rate of interest. One is the cause, the other the effect, and it is impossible for any circumstances to make them change places.

End of Notes

A bounty on the exportation of corn tends to lower its price to
the foreign consumer, but it has no permanent effect on its price
in the home market.

22.2

Suppose that to afford the usual and general profits of
stock, the price of corn should in England be £4 per quarter; it
could not then be exported to foreign countries where it sold for
£3 15s. per quarter. But if a bounty of 10s. per quarter were
given on exportation, it could be sold in the foreign market at
£3 10s., and consequently the same profit would be afforded to
the corn grower, whether he sold it at £3 10s. in the foreign, or
at £4 in the home market.

22.3

A bounty then, which should lower the price of British corn
in the foreign country, below the cost of producing corn in that
country, would naturally extend the demand for British, and
diminish the demand for their own corn. This extension of demand
for British corn could not fail to raise its price for a time in
the home market, and during that time to prevent also its falling
so low in the foreign market as the bounty has a tendency to
effect. But the causes which would thus operate on the market
price of corn in England would produce no effect whatever on its
natural price, or its real cost of production. To grow corn would
neither require more labour nor more capital, and, consequently,
if the profits of the farmer's stock were before only equal to
the profits of the stock of other traders, they will, after the
rise of price, be considerably above them. By raising the profits
of the farmer's stock, the bounty will operate as an
encouragement to agriculture, and capital will be withdrawn from
manufactures to be employed on the land, till the enlarged demand
for the foreign market has been supplied, when the price of corn
will again fall in the home market to its natural and necessary
price, and profits will be again at their ordinary and accustomed
level. The increased supply of grain operating on the foreign
market, will also lower its price in the country to which it is
exported, and will thereby restrict the profits of the exporter
to the lowest rate at which he can afford to trade.

22.4

The ultimate effect then of a bounty on the exportation of
corn, is not to raise or to lower the price in the home market,
but to lower the price of corn to the foreign consumer—to the
whole extent of the bounty, if the price of corn had not before
been lower in the foreign, than in the home market—and in a
less degree, if the price in the home had been above the price in
the foreign market.

22.5

A writer in the fifth vol. of the Edinburgh Review, on the
subject of a bounty on the exportation of corn, has very clearly
pointed out its effects on the foreign and home demand. He has
also justly remarked, that it would not fail to give
encouragement to agriculture in the exporting country; but he
appears to have imbibed the common error which has misled Dr.
Smith, and, I believe, most other writers on this subject. He
supposes, because the price of corn ultimately regulates wages,
that therefore it will regulate the price of all other
commodities. He says that the bounty, "by raising the profits of
farming, will operate as an encouragement to husbandry; by
raising the price of corn to the consumers at home, it will
diminish for the time their power of purchasing this necessary of
life, and thus abridge their real wealth. It is evident, however,
that this last effect must be temporary: the wages of the
labouring consumers had been adjusted before by competition, and
the same principle will adjust them again to the same rate, by
raising the money price of labour, and, through that, of other
commodities, to the money price of corn. The bounty upon
exportation, therefore, will ultimately raise the money price of
corn in the home market; not directly, however, but through the
medium of an extended demand in the foreign market, and a
consequent enhancement of the real price at home: and this rise
of the money price, when it has once been communicated to other
commodities, will of course become fixed."

22.6

If, however, I have succeeded in shewing that it is not the
rise in the money wages of labour which raises the price of
commodities, but that such rise always affects profits, it will
follow that the prices of commodities would not rise in
consequence of a bounty.

22.7

But a temporary rise in the price of corn, produced by an
increased demand from abroad, would have no effect on the money
price of labour. The rise of corn is occasioned by a competition
for that supply which was before exclusively appropriated to the
home market. By raising profits, additional capital is employed
in agriculture, and the increased supply is obtained; but till it
be obtained, the high price is absolutely necessary to proportion
the consumption to the supply, which would be counteracted by a
rise of wages. The rise of corn is the consequence of its
scarcity, and is the means by which the demand of the home
purchasers is diminished. If wages were increased, the
competition would increase, and a further rise of the price of
corn would become necessary. In this account of the effects of a
bounty, nothing has been supposed to occur to raise the natural
price of corn, by which its market price is ultimately governed;
for it has not been supposed, that any additional labour would be
required on the land to insure a given production, and this alone
can raise its natural price. If the natural price of cloth were
20s. per yard, a great increase in the foreign demand might raise
the price to 25s., or more, but the profits which would then be
made by the clothier would not fail to attract capital in that
direction, and although the demand should be doubled, trebled, or
quadrupled, the supply would ultimately be obtained, and cloth
would fall to its natural price of 20s. So, in the supply of
corn, although we should export 2, 3, or 800,000 quarters
annually, it would ultimately be produced at its natural price,
which never varies, unless a different quantity of labour becomes
necessary to production.

22.8

Perhaps in no part of Adam Smith's justly celebrated work,
are his conclusions more liable to objection, than in the chapter
on bounties. In the first place, he speaks of corn as of a
commodity of which the production cannot be increased, in
consequence of a bounty on exportation; he supposes invariably,
that it acts only on the quantity actually produced, and is no
stimulus to further reduction. "In years of plenty," he says, "by
occasioning an extraordinary exportation, it necessarily keeps up
the price of corn in the home market above what it would
naturally fall to. In years of scarcity, though the bounty is
frequently suspended, yet the great exportation which it
occasions in years of plenty must frequently hinder, more or
less, the plenty of one year from relieving the scarcity of
another. Both in the years of plenty and in years of scarcity,
therefore, the bounty necessarily tends to raise the money price
of corn somewhat higher than it otherwise would be in the home
market."51*

22.9

Adam Smith appears to have been fully aware, that the
correctness of his argument entirely depended on the fact,
whether the increase "of the money price of corn, by rendering
that commodity more profitable to the farmer, would not
necessarily encourage its production."

22.10

"I answer," he says, "that this might be the case, if the
effect of the bounty was to raise the real price of corn, or to
enable the farmer, with an equal quantity of it, to maintain a
greater number of labourers in the same manner, whether liberal,
moderate, or scanty, as other labourers are commonly maintained
in his neighbourhood."

22.11

If nothing were consumed by the labourer but corn, and if the
portion which he received was the very lowest which his
sustenance required, there might be some ground for supposing,
that the quantity paid to the labourer could, under no
circumstances, be reduced,—but the money wages of labour
sometimes do not rise at all, and never rise in proportion to the
rise in the money price of corn, because corn, though an
important part, is only a part of the consumption of the
labourer. If half his wages were expended on corn, and the other
half on soap, candles, fuel, tea, sugar, clothing, &c.,
commodities on which no rise is supposed to take place, it is
evident that he would be quite as well paid with a bushel and a
half of wheat, when it was 16s. a bushel, as he was with two
bushels, when the price was 8s. per bushel; or with 24s. in
money, as he was before with 16s. His wages would rise only 50
per cent though corn rose 100 per cent; and, consequently, there
would be sufficient motive to divert more capital to the land, if
profits on other trades continued the same as before. But such a
rise of wages would also induce manufacturers to withdraw their
capitals from manufactures, to employ them on the land; for
whilst the farmer increased the price of his commodity 100 per
cent, and his wages only 50 per cent, the manufacturer would be
obliged also to raise wages 50 per cent, whilst he had no
compensation whatever, in the rise of his manufactured commodity,
for this increased charge of production; capital would
consequently flow from manufactures to agriculture, till the
supply would again lower the price of corn to 8s. per bushel, and
wages to 16s. per week; when the manufacturer would obtain the
same profits as the farmer, and the tide of capital would cease
to set in either direction. This is in fact the mode in which the
cultivation of corn is always extended, and the increased wants
of the market supplied. The funds for the maintenance of labour
increase, and wages are raised. The comfortable situation of the
labourer induces him to marry—population increases, and the
demand for corn raises its price relatively to other things—more capital is profitably employed on agriculture, and continues
to flow towards it, till the supply is equal to the demand, when
the price again falls, and agricultural and manufacturing profits
are again brought to a level.

22.12

But whether wages were stationary after the rise in the price
of corn, or advanced moderately, or enormously, is of no
importance to this question, for wages are paid by the
manufacturer as well as by the farmer, and, therefore, in this
respect they must be equally affected by a rise in the price of
corn. But they are unequally affected in their profits, inasmuch
as the farmer sells his commodity at an advanced price, while the
manufacturer sells his for the same price as before. It is,
however, the inequality of profit, which is always the inducement
to remove capital from one employment to another; and, therefore,
more corn would be produced, and fewer commodities manufactured.
Manufactures would not rise, because fewer would be manufactured,
for a supply of them would be obtained in exchange for the
exported corn.

22.13

A bounty, if it raises the price of corn, either raises it in
comparison with the price of other commodities, or it does not.
If the affirmative be true, it is impossible to deny the greater
profits of the farmer, and the temptation to the removal of
capital, till its price is again lowered by an abundant supply.
If it does not raise it in comparison with other commodities,
where is the injury to the home consumer, beyond the
inconvenience of paying the tax? If the manufacturer pays a
greater price for his corn, he is compensated by the greater
price at which he sells his commodity, with which his corn is
ultimately purchased.

22.14

The error of Adam Smith proceeds precisely from the same
source as that of the writer in the Edinburgh Review; for they
both think "that the money price of corn regulates that of all
other home-made commodities."52*
"It regulates," says Adam
Smith, "the money price of labour, which must always be such as
to enable the labourer to purchase a quantity of corn sufficient
to maintain him and his family, either in the liberal, moderate,
or scanty manner, in which the advancing, stationary, or
declining circumstances of the society oblige his employers to
maintain him. By regulating the money price of all the other
parts of the rude produce of land, it regulates that of the
materials of almost all manufactures. By regulating the money
price of labour, it regulates that of manufacturing art and
industry; and by regulating both, it regulates that of the
complete manufacture. The money price of labour, and of every
thing that is the produce either of land and labour, must
necessarily rise or fall in proportion to the money price of
corn."

22.15

This opinion of Adam Smith, I have before attempted to
refute. In considering a rise in the price of commodities as a
necessary consequence of a rise in the price of corn, he reasons
as though there were no other fund from which the increased
charge could be paid. He has wholly neglected the consideration
of profits, the diminution of which forms that fund, without
raising the price of commodities. If this opinion of Dr. Smith
were well founded, profits could never really fall, whatever
accumulation of capital there might be. If, when wages rose, the
farmer could raise the price of his corn, and the clothier, the
hatter, the shoemaker, and every other manufacturer, could also
raise the price of their goods in proportion to the advance,
although estimated in money they might be all raised, they would
continue to bear the same value relatively to each other. Each of
these trades could command the same quantity as before of the
goods of the others, which, since it is goods, and not money,
which constitute wealth, is the only circumstance that could be
of importance to them; and the whole rise in the price of raw
produce and of goods, would be injurious to no other persons but
to those whose property consisted of gold and silver, or whose
annual income was paid in a contributed quantity of those metals,
whether in the form of bullion or of money. Suppose the use of
money to be wholly laid aside, and all trade to be carried on by
barter. Under such circumstances, could corn rise in exchangeable
value with other things? If it could, then it is not true that
the value of corn regulates the value of all other commodities;
for to do that, it should not vary in relative value to them. If
it could not, then it must be maintained, that whether corn be
obtained on rich, or on poor land, with much labour, or with
little, with the aid of machinery, or without, it would always
exchange for an equal quantity of all other commodities.

22.16

I cannot, however, but remark that, though Adam Smith's
general doctrines correspond with this which I have just quoted,
yet in one part of his work he appears to have given a correct
account of the nature of value. "The proportion between the value
of gold and silver, and that of goods of any other kind, DEPENDS
IN ALL CASES," he says, "upon the proportion between the quantity
of labour which is necessary in order to bring a certain quantity
of gold and silver to market, and that which is necessary to
bring thither a certain quantity of any other sort of goods."
Does he not here fully acknowledge that if any increase takes
place in the quantity of labour, required to bring one sort of
goods to market, whilst no such increase takes place in bringing
another sort thither, the first sort will rise in relative value.
If no more labour than before be required to bring either cloth
or gold to market, they will not vary in relative value, but if
more labour be required to bring corn and shoes to market, will
not corn and shoes rise in value relatively to cloth, and money
made of gold?

22.17

Adam Smith again considers that the effect of the bounty is
to cause a partial degradation in the value of money. "That
degradation," says he, "in the value of silver, which is the
effect of the fertility of the mines, and which operates equally,
or very nearly equally, through the greater part of the
commercial world, is a matter of very little consequence to any
particular country. The consequent rise of all money prices,
though it does not make those who receive them really richer,
does not make them really poorer. A service of plate becomes
really cheaper, and every thing else remains precisely of the
same real value as before." This observation is most correct.

22.18

"But that degradation in the value of silver, which being the
effect either of the peculiar situation, or of the political
institutions of a particular country, takes place only in that
country, is a matter of very great consequence, which, far from
tending to make any body really richer, tends to make every body
really poorer. The rise in the money price of all commodities,
which is in this case peculiar to that country, tends to
discourage more or less every sort of industry which is carried
on within it, and to enable foreign nations, by furnishing almost
all sorts of goods for a smaller quantity of silver than its own
workmen can afford to do, to undersell them, not only in the
foreign, but even in the home market."

22.19

I have elsewhere attempted to shew that a partial degradation
in the value of money, which shall affect both agricultural
produce, and manufactured commodities, cannot possibly be
permanent. To say that money is partially degraded, in this
sense, is to say that all commodities are at a high price; but
while gold and silver are at liberty to make purchases in the
cheapest market, they will be exported for the cheaper goods of
other countries, and the reduction of their quantity, will
increase their value at home; commodities will regain their usual
level, and those fitted for foreign markets will be exported, as
before.

22.20

A bounty, therefore, cannot, I think, be objected to on this
ground.

22.21

If then, a bounty raises the price of corn in comparison with
all other things, the farmer will be benefited, and more land
will be cultivated; but if the bounty do not raise the value of
corn relatively to other things, then no other inconvenience will
attend it, than that of paying the bounty; one which I neither
wish to conceal nor underrate.

22.22

Dr. Smith states, that "by establishing high duties on the
importation, and bounties on the exportation of corn, the country
gentlemen seemed to have imitated the conduct of the
manufacturers." By the same means, both had endeavoured to raise
the value of their commodities. "They did not, perhaps, attend to
the great and essential difference which nature has established
between corn, and almost every other sort of goods. When by
either of the above means, you enable our manufacturers to sell
their goods for somewhat a better price than they otherwise could
get for them, you raise not only the nominal, but the real price
of those goods. You increase not only the nominal, but the real
profit, the real wealth and revenue of those manufacturers—you
really encourage those manufactures. But when, by the like
institutions, you raise the nominal or money price of corn, you
do not raise its real value, you do not increase the real wealth
of our farmers or country gentlemen, you do not encourage the
growth of corn. The nature of things has stamped upon corn a real
value, which cannot be altered by merely altering its money
price. Through the world in general, that value is equal to the
quantity of labour which it can maintain."

22.23

I have already attempted to shew, that the market price of
corn would, under an increased demand from the effects of a
bounty, exceed its natural price, till the requisite additional
supply was obtained, and that then it would again fall to its
natural price. But the natural price of corn is not so fixed as
the natural price of commodities; because, with any great
additional demand for corn, land of a worse quality must be taken
into cultivation, on which more labour will be required to
produce a given quantity, and the natural price of corn will be
raised. By a continued bounty, therefore, on the exportation of
corn, there would be created a tendency to a permanent rise in
the price of corn, and this, as I have shewn elsewhere,53*
never fails to raise rent. Country gentlemen, then, have not only
a temporary but a permanent interest in prohibitions of the
importation of corn, and in bounties on its exportation; but
manufacturers have no permanent interest in establishing high
duties on the importation, and bounties on the exportation of
commodities; their interest is wholly temporary.

22.24

A bounty on the exportation of manufactures will,
undoubtedly, as Dr. Smith contends, raise for a time the market
price of manufactures, but it will not raise their natural price.
The labour of 200 men will produce double the quantity of these
goods that 100 could produce before; and, consequently, when the
requisite quantity of capital was employed in supplying the
requisite quantity of manufactures, they would again fall to
their natural price, and all advantage from a high market price
would cease. It is, then, only during the interval after the rise
in the market price of commodities, and till the additional
supply is obtained, that the manufacturers will enjoy high
profits; for as soon as prices had subsided, their profits would
sink to the general level.

22.25

Instead of agreeing, therefore, with Adam Smith, that the
country gentlemen had not so great an interest in prohibiting the
importation of corn, as the manufacturer had in prohibiting the
importation of manufactured goods, I contend, that they have a
much superior interest; for their advantage is permanent, while
that of the manufacturer is only temporary. Dr. Smith observes,
that nature has established a great and essential difference
between corn and other goods, but the proper inference from that
circumstance is directly the reverse of that which he draws from
it; for it is on account of this difference that rent is created,
and that country gentlemen have an interest in the rise of the
natural price of corn. Instead of comparing the interest of the
manufacturer with the interest of the country gentleman, Dr. Smith
should have compared it with the interest of the farmer, which is
very distinct from that of his landlord. Manufacturers have no
interest in the rise of the natural price of their commodities,
nor have farmers any interest in the rise of the natural price of
corn, or other raw produce, though both these classes are
benefited while the market price of their productions exceeds
their natural price. On the contrary, landlords have a most
decided interest in the rise of the natural price of corn; for
the rise of rent is the inevitable consequence of the difficulty
of producing raw produce, without which its natural price could
not rise. Now, as bounties on exportation and prohibitions of the
importation of corn increase the demand, and drive us to the
cultivation of poorer lands, they necessarily occasion an
increased difficulty of production.

22.26

The sole effect of high duties on the importation either of
manufactures or of corn, or of a bounty on their exportation, is
to divert a portion of capital to an employment, which it would
not naturally seek. It causes a pernicious distribution of the
general funds of the society—it bribes a manufacturer to
commence or continue in a comparatively less profitable
employment. It is the worst species of taxation, for it does not
give to the foreign country all that it takes away from the home
country, the balance of loss being made up by the less
advantageous distribution of the general capital. Thus, if the
price of corn is in England £4 and in France £3 15s. a bounty of
10s. will ultimately reduce it to £3 10s. in France, and maintain
it at the same price of £4 in England. For every quarter
exported, England pays a tax of 10s. For every quarter imported
into France, France gains only 5s., so that the value of 5s. per
quarter is absolutely lost to the world, by such a distribution
of its funds as to cause diminished production, probably not of
corn, but of some other object of necessity or enjoyment.

22.27

Mr. Buchanan appears to have seen the fallacy of Dr. Smith's
arguments respecting bounties, and on the last passage which I
have quoted, very judiciously remarks: "In asserting that nature
has stamped a real value on corn, which cannot be altered by
merely altering its money price, Dr. Smith confounds its value in
use with its value in exchange. A bushel of wheat will not feed
more people during scarcity than during plenty; but a bushel of
wheat will exchange for a greater quantity of luxuries and
conveniences when it is scarce, than when it is abundant; and the
landed proprietors, who have a surplus of food to dispose of,
will, therefore, in times of scarcity, be richer men; they will
exchange their surplus for a greater value of other enjoyments,
than when corn is in greater plenty. It is vain to argue,
therefore, that if the bounty occasions a forced exportation of
corn, it will not also occasion a real rise of price." The whole
of Mr. Buchanan's arguments on this part of the subject of
bounties, appear to me to be perfectly clear and satisfactory.

22.28

Mr. Buchanan, however, has not, I think, any more than Dr.
Smith, or the writer in the Edinburgh Review, correct opinions as
to the influence of a rise in the price of labour on manufactured
commodities. From his peculiar views, which I have elsewhere
noticed, he thinks that the price of labour has no connexion with
the price of corn, and, therefore, that the real value of corn
might and would rise without affecting the price of labour; but
if labour were affected, he would maintain with Adam Smith and
the writer in the Edinburgh Review, that the price of
manufactured commodities would also rise; and then I do not see
how he would distinguish such a rise of corn, from a fall in the
value of money, or how he could come to any other conclusion than
that of Dr. Smith. In a note to page 276, vol. i. of the Wealth of
Nations, Mr. Buchanan observes, "but the price of corn does not
regulate the money price of all the other parts of the rude
produce of land. It regulates the price neither of metals, nor of
various other useful substances, such as coals, wood, stones,
&c.; and as it does not regulate the price of labour, it does not
regulate the price of manufactures; so that the bounty, in so far
as it raises the price of corn, is undoubtedly a real benefit to
the farmer. It is not on this ground, therefore, that its policy
must be argued. Its encouragement to agriculture, by raising the
price of corn, must be admitted; and the question then comes to
be, whether agriculture ought to be thus encouraged?"—It is
then, according to Mr. Buchanan, a real benefit to the farmer,
because it does not raise the price of labour; but if it did, it
would raise the price of all things in proportion, and then it
would afford no particular encouragement to agriculture.

22.29

It must, however, be conceded, that the tendency of a bounty
on the exportation of any commodity is to lower in a small degree
the value of money. Whatever facilitates exportation, tends to
accumulate money in a country; and, on the contrary, whatever
impedes exportation, tends to diminish it. The general effect of
taxation, by raising the prices of the commodities taxed, tends
to diminish exportation, and, therefore, to check the influx of
money; and on the same principle, a bounty encourages the influx
of money. This is more fully explained in the general
observations on taxation.

22.30

The injurious effects of the mercantile system have been
fully exposed by Dr. Smith; the whole aim of that system was to
raise the price of commodities, in the home market, by
prohibiting foreign competition; but this system was no more
injurious to the agricultural classes than to any other part of
the community. By forcing capital into channels where it would
not otherwise flow, it diminished the whole amount of commodities
produced. The price, though permanently higher, was not sustained
by scarcity, but by difficulty of production; and, therefore,
though the sellers of such commodities sold them for a higher
price, they did not sell them, after the requisite quantity of
capital was employed in producing them, at higher profits.54*

22.31

The manufacturers themselves, as consumers, had to pay an
additional price for such commodities, and, therefore, it cannot
be correctly said, that "the enhancement of price occasioned by
both, (corporation laws and high duties on the importations of
foreign commodities,) is every where fully paid by the landlords,
farmers, and labourers of the country."

22.32

It is the more necessary to make this remark, as in the
present day the authority of Adam Smith is quoted by country
gentlemen, for imposing similar high duties on the importation of
foreign corn. Because the cost of production, and, therefore, the
prices of various manufactured commodities, are raised to the
consumer by one error in legislation, the country has been called
upon, on the plea of justice, quietly to submit to fresh
exactions. Because we all pay an additional price for our linen,
muslin, and cottons, it is thought just that we should pay also
an additional price for our corn. Because, in the general
distribution of the labour of the world, we have prevented the
greatest amount of productions from being obtained, by our
portion of that labour, in manufactured commodities, we should
further punish ourselves by diminishing the productive powers of
the general labour in the supply of raw produce. It would be much
wiser to acknowledge the errors which a mistaken policy has
induced us to adopt, and immediately to commence a gradual
recurrence to the sound principles of an universally free
trade.55*

22.33

"I have already had occasion to remark," observes M. Say, "in
speaking of what is improperly called the balance of trade, that
if it suits a merchant better to export the precious metals to a
foreign country than any other goods, it is also the interest of
the State that he should export them, because the State only
gains or loses through the channel of its citizens; and in what
concerns foreign trade, that which best suits the individual,
best suits also the State; therefore, by opposing obstacles to
the exportation which individuals would be inclined to make of
the precious metals, nothing more is done, than to force them to
substitute some other commodity less profitable to themselves and
to the State. It must, however, be remarked, that I say only in
what concerns foreign trade; because the profits which merchants
make by their dealings with their countrymen, as well as those
which are made in the exclusive commerce with colonies, are not
entirely gains for the State. In the trade between individuals of
the same country, there is no other gain but the value of an
utility produced; que la valeur d'une utilité produite."56*
Vol. i. p. 401. I cannot see the distinction here made between
the profits of the home and foreign trade. The object of all
trade is to increase productions. If for the purchase of a pipe
of wine, I had it in my power to export bullion, which was bought
with the value of the produce of 100 days' labour, but
Government, by prohibiting the exportation of bullion, should
oblige me to purchase my wine with a commodity bought with the
value of the produce of 105 days' labour, the produce of five
days' labour is lost to me, and, through me, to the State. But if
these transactions took place between individuals, in different
provinces of the same country, the same advantage would accrue
both to the individual, and through him, to the country; if he
were unfettered in his choice of the commodities, with which he
made his purchases; and the same disadvantage, if he were obliged
by Government to purchase with the least beneficial commodity. If
a manufacturer could work up with the same capital, more iron
where coals are plentiful, than he could where coals are scarce,
the country would be benefited by the difference. But if coals
were no where plentiful, and he imported iron, and could get this
additional quantity, by the manufacture of a commodity, with the
same capital and labour, he would in like manner benefit his
country by the additional quantity of iron. In the
[7th] Chap. of
this work, I have endeavoured to shew that all trade, whether
foreign or domestic, is beneficial, by increasing the quantity,
and not by increasing the value of productions. We shall have no
greater value, whether we carry on the most beneficial home and
foreign trade, or in consequence of being fettered by prohibitory
laws, we are obliged to content ourselves with the least
advantageous. The rate of profits, and the value produced, will
be the same. The advantage always resolves itself into that which
M. Say appears to confine to the home trade; in both cases there
is no other gain but that of the value of an utilité produite.

Notes for this chapter

In another place he says, that "whatever extension of the foreign market can be occasioned by the bounty, must, in every particular year, be altogether at the expense of the home market; as every bushel of corn which is exported by means of the bounty, and which would not have been exported without the bounty, would have remained in the home market to increase the consumption, and to lower the price of that commodity. The corn bounty, it is to be observed, as well as every other bounty upon exportation, imposes two different taxes upon the people; first, the tax which they are obliged to contribute, in order to pay the bounty; and secondly, the tax which arises from the advanced price of the commodity in the home market, and which, as the whole body of the people are purchasers of corn, must, in this particular commodity, be paid by the whole body of the people. In this particular commodity, therefore, the second tax is by much the heaviest of the two." "For every five shillings, therefore, which they contribute to the payment of the first tax, they must contribute six pounds four shillings to the payment of the second." "The extraordinary exportation of corn, therefore, occasioned by the bounty, not only in every particular year diminishes the home, just as much as it extends the foreign market and consumption; but, by restraining the population and industry of the country, its final tendency is to stunt and restrain the gradual extension of the home market, and thereby in the long run, rather to diminish than to augment the whole market and consumption of corn."

M. Say supposes the advantage of the manufacturers at home to be more than temporary. "A government which absolutely prohibits the importation of certain foreign goods, establishes a monopoly in favour of those who produce such commodities at home, against those who consume them; in other words, those at home who produce them having the exclusive privilege of selling them, may elevate their price above the natural price; and the consumers at home, not being able to obtain them elsewhere, are obliged to purchase them at a higher price." Vol. i. p. 201.

But how can they permanently support the market price of their goods above the natural price, when every one of their fellow citizens is free to enter into the trade? They are guaranteed against foreign, but not against home competition. The real evil arising to the country from such monopolies, if they can be called by that name, lies, not in raising the market price of such goods, but in raising their real and natural price. By increasing the cost of production, a portion of the labour of the country is less productively employed.

"A freedom of trade is alone wanted to guarantee a country like Britain, abounding in all the varied products of industry, in merchandise suited to the wants of every society, from the possibility of a scarcity. The nations of the earth are not condemned to throw the dice to determine which of them shall submit to famine. There is always abundance of food in the world. To enjoy a constant plenty, we have only to lay aside our prohibitions and restrictions, and cease to counteract the benevolent wisdom of Providence." Article, "Corn Laws and Trade." Supplement to Encyclopaedia Britannica.

Are not the following passages contradictory to the one above quoted? "Besides, that home trade, though less noticed, (because it is in a variety of hands) is the most considerable, it is also the most profitable. The commodities exchanged in that trade are necessarily the productions of the same country." Vol. i. p. 84.

"The English Government has not observed, that he most profitable sales are those which a country makes to itself, because they cannot take place, without two values being produced by the nation; the value which is sold, and the value with which the purchase is made." Vol. i. p.221.

End of Notes

It may not be uninstructive to consider the effects of a
bounty on the production of raw produce and other commodities,
with a view to observe the application of the principles which I
have been endeavouring to establish, with regard to the profits
of stock, the division of the annual produce of the land and
labour, and the relative prices of manufactures and raw produce.
In the first place let us suppose that a tax was imposed on all
commodities for the purpose of raising a fund to be employed by
Government, in giving a bounty on the production of corn. As no
part of such a tax would be expended by Government, and as all
that was received from one class of the people, would be returned
to another, the nation collectively would neither be richer nor
poorer, from such a tax and bounty. It would be readily allowed,
that the tax on commodities by which the fund was created, would
raise the price of the commodities taxed; all the consumers of
those commodities, therefore, would contribute towards that fund;
in other words, their natural or necessary price being raised, so
would, too, their market price. But for the same reason that the
natural price of those commodities would be raised, the natural
price of corn would be lowered; before the bounty was paid on
production, the farmers obtained as great a price for their corn
as was necessary to repay them their rent and their expenses, and
afford them the general rate of profits; after the bounty, they
would receive more than that rate, unless the price of corn fell
by a sum at least equal to the bounty. The effect then of the tax
and bounty, would be to raise the price of commodities in a
degree equal to the tax levied on them, and to lower the price of
corn by a sum equal to the bounty paid. It will be observed, too,
that no permanent alteration could be made in the distribution of
capital between agriculture and manufactures, because as there
would be no alteration, either in the amount of capital or
population, there would be precisely the same demand for bread
and manufactures. The profits of the farmer would be no higher
than the general level, after the fall in the price of corn; nor
would the profits of the manufacturer be lower after the rise of
manufactured goods; the bounty then would not occasion any more
capital to be employed on the land in the production of corn, nor
any less in the manufacture of goods. But how would the interest
of the landlord be affected? On the same principles that a tax on
raw produce would lower the corn rent of land, leaving the money
rent unaltered, a bounty on production, which is directly the
contrary of a tax, would raise corn rent, leaving the money rent
unaltered.57*
With the same money rent the landlord would have
a greater price to pay for his manufactured goods, and a less
price for his corn; he would probably therefore be neither richer
nor poorer.

23.2

Now, whether such a measure would have any operation on the
wages of labour, would depend on the question, whether the
labourer, in purchasing commodities, would pay as much towards
the tax as he would receive from the effects of the bounty, in
the low price of his food. If these two quantities were equal,
wages would continue unaltered; but if the commodities taxed were
not those consumed by the labourer, his wages would fall, and his
employer would be benefited by the difference. But this is no
real advantage to his employer; it would indeed operate to
increase the rate of his profits, as every fall of wages must do;
but in proportion as the labourer contributed less to the fund
from which the bounty was paid, and which, let it be remembered,
must be raised, his employer must contribute more; in other
words, he would contribute as much to the tax by his expenditure,
as he would receive in the effects of the bounty and the higher
rate of profits together. He obtains a higher rate of profits to
requite him for his payment, not only of his own quota of the
tax, but of his labourer's also; the remuneration which he
receives for his labourer's quota, appears in diminished wages,
or, which is the same thing, in increased profits; the
remuneration for his own appears in the diminution in the price
of the corn which he consumes, arising from the bounty.

23.3

Here it will be proper to remark the different effects
produced on profits from an alteration in the real labour, or
natural, value of corn, and an alteration in the relative value
of corn, from taxation and from bounties. If corn is lowered in
price by an alteration in its labour price, not only will the
rate of the profits of stock be altered, but the condition of the
capitalist will be improved. With greater profits, he will have
no more to pay for the objects on which those profits are
expended; which does not happen, as we have just seen, when the
fall is occasioned artificially by a bounty. In the real fall in
the value of corn, arising from less labour being required to
produce one of the most important objects of man's consumption,
labour is rendered more productive. With the same capital the
same labour is employed, and an increase of productions is the
result; not only then will the rate of profits be increased, but
the condition of him who obtains them will be improved; not only
will each capitalist have a greater money revenue, if he employs
the same money capital, but also when that money is expended, it
will procure him a greater sum of commodities; his enjoyments
will be augmented. In the case of the bounty, to balance the
advantage which he derives from the fall of one commodity, he has
the disadvantage of paying a price more than proportionally high
for another; he receives an increased rate of profits in order to
enable him to pay this higher price; so that his real situation,
though not deteriorated, is in no way improved: though he gets a
higher rate of profits, he has no greater command of the produce
of the land and labour of the country. When the fall in the value
of corn is brought about by natural causes, it is not
counteracted by the rise of other commodities; on the contrary,
they fall from the raw material falling from which they are made:
but when the fall in corn is occasioned by artificial means, it
is always counteracted by a real rise in the value of some other
commodity, so that if corn be bought cheaper, other commodities
are bought dearer.

23.4

This then is a further proof, that no particular
disadvantage arises from taxes on necessaries, on account of
their raising wages and lowering the rate of profits. Profits are
indeed lowered, but only to the amount of the labourer's portion
of the tax, which must at all events be paid either by his
employer or by the consumer of the produce of the labourer's
work. Whether you deduct £50 per annum from the employer's
revenue, or add £50 to the prices of the commodities which he
consumes, can be of no other consequence to him or to the
community, than as it may equally affect all other classes. If it
be added to the prices of the commodity, a miser may avoid the
tax by not consuming; if it be indirectly deducted from every
man's revenue, he cannot avoid paying his fair proportion of the
public burthens.

23.5

A bounty on the production of corn then, would produce no
real effect on the annual produce of the land and labour of the
country, although it would make corn relatively cheap, and
manufactures relatively dear. But suppose now that a contrary
measure should be adopted, that a tax should be raised on corn
for the purpose of affording a fund for a bounty on the
production of commodities.

23.6

In such case, it is evident that corn would be dear, and
commodities cheap; labour would continue at the same price if the
labourer were as much benefited by the cheapness of commodities
as he was injured by the dearness of corn; but if he were not,
wages would rise, and profits would fall, while money rent would
continue the same as before; profits would fall, because, as we
have just explained, that would be the mode in which the
labourer's share of the tax would be paid by the employers of
labour. By the increase of wages the labourer would be
compensated for the tax which he would pay in the increased price
of corn; by not expending any part of his wages on the
manufactured commodities, he would receive no part of the bounty;
the bounty would be all received by the employers, and the tax
would be partly paid by the employed; a remuneration would be
made to the labourers, in the shape of wages, for this increased
burden laid upon them, and thus the rate of profits would be
reduced. In this case too there would be a complicated measure
producing no national result whatever.

23.7

In considering this question, we have purposely left out of
our consideration the effect of such a measure on foreign trade;
we have rather been supposing the case of an insulated country,
having no commercial connexion with other countries. We have seen
that as the demand of the country for corn and commodities would
be the same, whatever direction the bounty might take, there
would be no temptation to remove capital from one employment to
another: but this would no longer be the case if there were
foreign commerce, and that commerce were free. By altering the
relative value of commodities and corn, by producing so powerful
an effect on their natural prices, we should be applying a strong
stimulus to the exportation of those commodities whose natural
prices were lowered, and an equal stimulus to the importation of
those commodities whose natural prices were raised, and thus such
a financial measure might entirely alter the natural distribution
of employments; to the advantage indeed of the foreign countries,
but ruinously to that in which so absurd a policy was adopted.

Notes for this chapter

End of Notes

The cuneiform inscription in the Liberty Fund logo is the earliest-known written appearance of the word "freedom" (amagi), or "liberty." It is taken from a clay document written about 2300 B.C. in the Sumerian city-state of Lagash.